That Russia\u2019s economy was grinding its gears was no secret to anyone paying close attention.<\/p>\n
That it was outright screeching to a halt, if not shifting into reverse, was more of a surprise — apparently even to President Vladimir Putin, who chided his top economic advisers last week in a Kremlin meeting that was televised for maximum effect.<\/p>\n
Among those on the receiving end of Putin\u2019s ire: Elvira Nabiullina, the respected Central Bank chief who has played a singular role in keeping the economy humming despite being knocked off balance by the war on Ukraine.<\/p>\n
Now, the question is whether Nabiullina, who has held the position for almost 13 years, may have finally fallen out of favor with the Kremlin\u2019s leadership. And if so, what do they plan to do about it.<\/p>\n
\u201cReplacing her now would not just signal weakness,\u201d said Aleksandra Prokopenko, a former Central Bank adviser who is now a fellow at the Berlin-based Carnegie Russia Eurasia Center. \u201cIt would unsettle the one institutional anchor that has maintained credibility with markets and kept the inflation stabilization on track.\u201d<\/p>\n
\u201cIf they fire her, the entire business ecosystem will panic,\u201d said Nicholas Birman-Trickett, a political risk and commodities analyst and former fellow with the US-based Foreign Policy Research Institute. The Kremlin \u201cmay want lower rates but they also know that a \u2018yes\u2019 man would be terrible.\u201d<\/p>\n
Nabiullina \u201cis one of the few positive aspects of Russian economic leadership and the economy,\u201d said Richard Portes, a professor of economics at London Business School, who spoke on a St. Petersburg panel discussion with Nabiullina in 2019. \u201cThere is nobody better qualified than she to run the Russian Central Bank, and any replacement will not be as good.\u201d<\/p>\n
Putin \u201ccan do all the scolding he likes. It won\u2019t improve the shape of the Russian economy, which is fairly disastrous,\u201d Portes said. \u201cI think he’s got a lot to worry about there.\u201d<\/p>\n
The Central Bank did not respond to e-mail queries seeking comment.<\/p>\n
‘Everyone’s Realizing Now Just How Bad Things Are’<\/p>\n
What\u2019s powered Russia’s gross domestic product (GDP) since the full-scale invasion of Ukraine in 2022 is largely war spending.<\/p>\n
The Kremlin has retooled the country into a war economy, spending record amounts on recruiting and paying soldiers, as well as building factories and transport networks to manufacture guns, tanks, planes, and drones, and ship them to the fight.<\/p>\n
As it had for the two decades preceding the full-scale war, the Kremlin funded its economic retooling with oil and gas exports, despite Western efforts to choke off those revenues.<\/p>\n
Labor shortages — resulting from men being drawn by high salaries to fight in Ukraine — drove up wages, which in turn drove up inflation, forcing the Central Bank to hike interest rates.<\/p>\n
It worked, but it\u2019s squeezed both businesses, which are increasingly defaulting on debt, and consumers, who are struggling to keep up with rising consumer goods prices.<\/p>\n
Last year, GDP growth slowed sharply, government figures show: from 4.9 percent in 2024, to just 1 percent in 2025.<\/p>\n
In the first two months of 2026, however, the economy contracted by 1.8 percent<\/a>, which Putin noted during the Kremlin meeting. Officials have also signaled <\/a>that 2026 forecasts — currently 1.3 percent growth — might have to be downgraded soon.<\/p>\n \u201cThe economic slowdown — and the prospect of Russia tipping into negative growth territory — is not a surprise to anyone who has been paying attention,\u201d Prokopenko said. \u201cThe only people for whom this should come as news are those who took the 4.9 percent growth in 2024 at face value without asking what was driving it.\u201d<\/p>\n \u201cEveryone’s realizing now just how bad things are; it just took years of war to get there,\u201d Birman-Trickett said. \u201cThe system can\u2019t really self-correct anymore.\u201d<\/p>\n The reversal is showing up in fiscal figures, with the federal budget deficit skyrocketing to 4.5 trillion rubles<\/a> ($60 billion) — double the same period last year — as oil export revenues dropped.<\/p>\n Due to a strong ruble, high interest rates, labor shortages, and budget constraints, the reserves in the Russian economy \u201chave been largely exhausted,\u201d the daily Nezavisimaya Gazeta<\/a> quoted Economics Minister Maksim Reshetnikov as telling a Vladivostok business forum this past weekend.<\/p>\n ‘Whoever Spoke To Him Last’<\/p>\n Along with Reshetnikov, Prime Minister Mikhail Mishustin, and other ministers, Nabiullina was shown prominently in the March 15 meeting with Putin, who seemed to suggest that he had been misled as to the dire state of the economy.<\/p>\n \u201cI hope to hear detailed reports why macroeconomic indicators are falling short of expectations, not only that of experts and analysts but also the actual forecasts of the government and the Central Bank,\u201d he said.<\/p>\n Outside of Russia, Sweden\u2019s military intelligence agency, and Germany\u2019s main intelligence agency both believe that the government is manipulating data, understating the scope of the country\u2019s economic problems, according to the Financial Times<\/a>.<\/p>\n Don\u2019t read too much into the televised meeting, Prokopenko cautioned, saying it was a calculated performance.<\/p>\n \u201cOne of Putin’s persistent governing patterns is that whoever last spoke to him shapes his framing of an issue,\u201d she said. \u201cThat pressure is landing on the economic bloc in a public setting is not unusual — it’s how the Kremlin manages internal tensions. It doesn’t necessarily signal a policy reversal or a change in who holds power over monetary policy.\u201d<\/p>\n Last summer, prominent business and banking officials began warning publicly about the danger of \u201cstagflation\u201d — where an economy is hampered by low growth, high inflation, and high unemployment.<\/p>\n Business leaders trained their ire on Nabiullina, whose rate hikes were aimed at tamping down soaring inflation — but saddled business with loans that were too expensive to refinance.<\/p>\n The director of a foundry in northern Russia sounded the alarm last week,<\/a> saying the economy faced a \u201ccatastrophic event\u201d and the government was badly out of touch.<\/p>\n